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Critical Success Factors for ERP Implementation

Critical Success Factors for ERP Implementation

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Published by: Apoorv Jhudeley on Sep 21, 2011
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International Journal of Business, Management and Social SciencesVol. 1, No. 1, 2010, pp. 65-78
2010 MultiCraft Limited. All rights reserved
Critical success factors for successful enterprise resource planningimplementation at Indian SMEs
L. Ganesh
, Arpita Mehta
* Christ University Institute of Management Bangalore, INDIACorresponding Authors e-mail: ganesh.l@christuniversity.in;mehta0108@gmail.com
 Small and medium-size enterprises (SMEs) have been receiving lesser focus from the software vendors than large enterprises(LEs).Research on the implementation of ERP in certain European countries shows that the job of implementing an EnterpriseResource Planning (ERP) is a riskier business for SMEs than for LEs. In this paper, a framework has been adopted to cover boththe national (Indian) and the organization size (SMEs) aspects to identify and rank the Critical Success Factors (CSFs) thatinfluence the success of ERP implementation at Indian SMEs. This paper attempts to build a consensus from the previousresearch and to derive a unified ERP implementation success model of the critical success factors to guide a successful ERPimplementation at Indian SMEs that differs from existing models in that it has a broader and more holistic focus due to thecoverage of thirty CSFs. A model is developed with the help of quantitative survey based method to identify and rank the thirtycritical success factors and then a framework has been proposed in terms of recommendations for managing these CSFs. Twoclose ended questionnaires were used to collect the data from the Indian ERP consultants, those who are having experience of ERP implementation in India for almost all types of Indian industries including Indian SMEs. The data collected were analyzedusing statistical techniques such as factor analysis and non parametric tests. This paper argues that ERP implementation atIndian SMEs should extend its scope beyond the configuration to the process, enterprise, technology, vendor, end-user, humanresource, performance, quality, strategy and project related issues by considering these thirty critical success factors for thesuccess of ERP implementation at Indian SMEs that may put Indian SMEs on the competitive position. The ERPimplementation success model simplifies the functionality of ERP implementation at Indian SMEs. The simplification of systemmakes easier to understand the ERP requirements. Although limited sample size restricted to Indian SMEs may limitgeneralization but still these factors can be put into practice to facilitate the process of successful ERP implementations at IndianSMEs. It is hoped that this research will help to bridge the current literature gap and provide practical advice for both academicsand practitioners for successful ERP implementation at Indian SMEs.
ERP, CSFs, Indian ERP, Implementation, SMEs , ERP Implementation, Indian SMEs.
1. Introduction
Technology has had a major impact on every organization. Whether it is a small or large organization, being competitive is thekey to success. Issue in dealing with a new ERP system is not solely technology, but it involves high degree of planning andcommitment too. SME’s face many of the same competitive problems as larger organizations, but have limited resources,experience and staffing skills (Nelson and Millet, 2001). As with the larger enterprises, ERP implementation is becoming criticallyimportant to SMEs in streamlining business processes, improving operational performance, and integrating data. Understandingthe CSFs for the success of ERP implementation is more critical to SMEs than larger organizations due to their more limitedresources. SMEs may not be able to withstand the financial impact of the partial failures and project abandonments that haveimpacted on many of their larger counterparts (Muscatello
et al
., 2003). Most of the existing studies that investigate the successfactors for ERP implementations focus on the projects that have been carried out in North America and Western Europe. In recentyears, researchers such as (Martinsons, 2004), have examined ERP implementations in other countries. Considering that most ERPsystems are designed by western information technology (IT) professionals, the structure and processes embedded in these systems
Ganesh and Mehta / International Journal of Business, Management and Social Sciences, Vol.1, No.1, 2010, pp. 65-78
66 reflect western culture. As a result, fundamental misalignments are likely to exist between foreign ERP systems and Indiancompanies requirements. These factors can result in design with undesirable reality gaps, which tend to lead to underperformingsystems (Walden and Browne, 2002).Over the past years, the global economic crisis has put the spotlight on many business organizations of any size. With India notbeing spared of the impact, large establishments have attempted to tackle this crisis in their own ways. SME’s are increasinglybeing brought into focus on account of their huge growth potential. Various researchers have recommended research into theimplementation and use of ERP at SMEs (Huin, 2004; Jacobs and Bendoly, 2003; Muscatello
et al
., 2003).Huin (2004) argues that “unless differences between small and large firms are understood, managing ERP projects in SMEs willcontinue to be slow, painful and at times even unfruitful”. Thus, it appears from previous studies that organizational conditions atSMEs differ from that of large organizations. This suggests that the relative importance of CSFs in ERP implementation may alsodiffer. Since literature on ERP implementation at Indian SMEs is relatively sparse, this research helps to narrow this knowledgegap by investigating ERP implementation at Indian SMEs.
The definition of Indian SMEs, according to MSME Development Act, 2006 is based on the ceilings on investment for anenterprise (micro, small and medium) is adopted in the current paper (see Table A – Appendix). Different ERP implementationphases are associated with specific ERP implementation problems (Markus and Tanis, 2000). The ERP implementation literaturehas provided a solid theoretical background to ERP research. However, there seems to be insufficient research investigation on thecritical success factors for successful ERP implementation at Indian SMEs for all the phases of ERP implementation from planningto post ERP implementation. This study aims at achieving this objectives by considering ERP implementation process based on“Synthesized process model for ERP implementation phases” (Shanks
et al
., 2000) to identify and rank the critical success factorsfor the success of ERP implementation at Indian SMEs (see Appendix).
1.1 Research Gap
Critical Success Factors (CSFs) approach was first used by Rockhart (1979) in IS area. It has been applied to many aspects of IS(Information Systems) including project management, manufacturing systems implementation, reengineering, and, more recently,ERP systems implementation (Brown
et al
., 1999). Within ERP implementation context, CSFs are defined as "factors needed toensure a successful ERP project" (Motwani
et al
., 2002). Several studies identified the critical factors needed to enable projectmanagers and management boards to improve their ERP implementation projects. Implementing successful ERP systems isinvestigated by many researchers. Their general focus was on identifying CSFs that need to exist in large organization to havesuccessful ERP implementation. These factors have been tested in different organizations in many developed and developingcountries by many researchers (Al-Mashari, 2001; Akkermans and Helden, 2002). These factors include, but not limited to, clearobjectives, user involvement, effective communications, change management, project team, project champion, consultants,architecture choices, minimal customization, excellent project management, top management support, data analysis andconversion, business process reengineering ,user training and education etc.It has to be noted that much of the attention focused on the critical success factors for the successful ERP implementation in thelarge enterprise. The success of ERP implementation in both SMEs and LEs are equally important thus the gaps in Indian ERPimplementation are:
What are the critical factors that influence success of ERP Implementation at Indian SMEs?
Which critical factors should get high priority in judging the success of ERP implementation at Indian SMEs?The main objectives of this paper are to identify and categorize the critical factors influencing success of ERP implementation atIndian SMEs. To find out the factors that can be defined under each component with their importance. To find out the reliability of instrument totally for defining each factor and to rank the critical success factors according to their importance.This research paper was organized in four sections. Section 1 introduces background information by providing the generalconcept of ERP systems and motivation for the research in the area of ERP implementation at Indian SMEs. It reviews theprevious efforts and findings in related areas. It presents an overview of previous research on ERP implementation in informationsystems. Sub section 1.1 defines the research gaps. Section 2 presents the research methodology, showing survey instruments andtheir descriptions. Section 3 deals with the results of the survey that were examined by reliability, validity test and exploratoryfactor analysis etc, to know that whether the survey instruments were developed properly or not. Previous research, theories andfundamentals of project management in ERP implementation are presented to form the theoretical background of the researchmodel. It provides the conceptual research model, describing factors and components. It contains the analysis and interpretation of main research findings along with the recommendations. Section 4 summarizes the study and concludes by examining thecontributions of the completed research model and presents the limitations for further advance research in this area.
Ganesh and Mehta / International Journal of Business, Management and Social Sciences, Vol.1, No.1, 2010, pp. 65-78
2. Research Methodology
The present study is exploratory in nature which identifies thirty critical success factors for the success of ERP implementation atIndian SMEs along with the KCSFs (Key Critical Success Factors) by the ranking of those CSFs according to their importance. Itgives insights into the phenomenon of CSFs for the success of ERP implementation at Indian SMEs. It does not go deep into thephenomenon of CSFs and so it cannot be determined as descriptive. Exploratory research has the goal of formulating problemsmore precisely, clarifying concepts, gathering explanations, gaining insights, eliminating ideas and formulating hypothesis.Exploratory research here is performed by a survey. A quantitative survey based approach was used. The ERP consultants fromIndia have been selected for the data collection using non probability sampling method. The primary data was collected by usingself structured two close ended questionnaires. A five item Likert scale was designed with each statement having five alternativesto choose from Strongly Agree=5, Agree=4, Neutral=3, Disagree=2, Strongly Disagree=1 for the first questionnaire. Secondquestionnaire ask for the ranking of CSFs on 1 to 30 points scale to identify Key Critical Success Factors (KCSFs) where 1=MostImportant and 30= Least Important. The Likert scale is relatively easy to construct compare to other scales. The process is tocollect the large number of statements that meet two criteria: (1) each statement is believed to be relevant to the attitude beingstudied and (2) each is believed to reflect favorable or unfavorable position on that attitude. Respondents should give their level of agreement to the statements. The pilot test was done for ten respondents. Later on both questionnaires were given to 50respondents. Statistically any same size which is 30 or more than 30 are generally considered as the large sample size, in thisresearch sample size was 50 in order to maintain the reliability and validity of the survey that is statistically largeenough(Kothari,1991). These respondents were from different background and different genders. Each questionnaire consists of 30questions (survey items) mainly dealing with 30 critical success factors for the success of ERP implementation at Indian SMEs. Inboth the questionnaire, respondents were asked to indicate their perception to identify and rank the thirty CSFs for the success of ERP implementation at Indian SMEs. The objectives of the research and the pattern of the questions were explained in detail to therespondents so that the bias will be as low as possible .Factor analysis was used to reduce the variables and detect the structure inthe relationship between variables along with Friedman test to rank the CSFs according to their importance. The analysis of datawas done by applying factor analysis, descriptive statistics and nonparametric test using SPSS V 18.0.Quantitative survey based method was used to explore “what are the possible critical success factors” that contribute in thesuccess of ERP implementation at India SMEs .Two close ended questionnaire were used to collect the data from the 50 IndianERP consultants those who are having experience of ERP implementation in India for almost all types of Indian industriesincluding Indian SMEs. Sample was drawn from ten national and international well known IT sector companies which are involvein world wide ERP implementation including Indian SMEs. The Indian ERP consultants have been selected for the data collectionusing non probability sampling method. The data collected were analyzed using statistical techniques such as descriptive statistics,reliability tests, exploratory factor analysis and non parametric tests. In order to explore thirty CSFs with the KCSFs, both theclose ended questionnaires were customized with the help of literature reviews and expert’s opinions. Later on it has beenstandardized for this research with the help of Cronbach’s Alpha readability and supported by exploratory factor analysis.
3. Analysis and Interpretation
3.1. The Proposed Theoretical Framework 
 The theoretical framework (Figure 1) is represented by four main sets of factors in terms of working hypothesis(just to get thedirection for exploratory research), namely enterprise related CSFs, technology related CSFs, vendor related CSFs andemployee/end-user related CSFs for the success of ERP implementation at Indian SMEs while considering all phases together. Atheoretical implementation process was identified, such that it is suggested that there is an explicit linkage between factors andsuccessful ERP implementation phases. Figure 1 shows the proposed theoretical framework for the successful ERPimplementation at Indian SMEs. The proposed model, referred to as the conceptual ERP implementation success model for IndianSMEs. As the success of ERP systems can be classified into two categories; the success of ERP adoption and the success of ERPimplementation. The success factors for the large enterprise as suggested by the various researchers in literature review areused in the model because these were already validated in previous research and confirmed by several experts interviewed for thelarge enterprise. This research hypothesize (working hypothesis) these factors directly influence the success of ERPImplementation at Indian SMEs. Based on the proposed model, this research developed the initial instrument (two close endedquestionnaires) to identify the CSFs and KCSFs for the success of ERP implementation at Indian SMEs. The following fourhypotheses were the working hypothesis for this research:WH1:
there is relationship between enterprise related critical success factors of the large enterprise and success of ERPimplementation at Indian SMEs during all the phases of ERP implementation
there is relationship between technology related critical success factors of the large enterprise and success of ERPimplementation at Indian SMEs during all the phases of ERP implementation

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